Egypt T-bill yield hits decade high ahead of vote

The average yield on 182-day Egyptian treasury bills rose to its highest in at least a decade at an auction on Thursday and the Egyptian pound closed at a seven-year low as investors grow nervous ahead of next week’s presidential election.

The average yield on 182-day T-bills climbed to 15.194 percent from 15.087 percent at an auction last week, its highest since August 2000 at least. The central bank sold 3 billion Egyptian pounds ($497 million), the same amount it had offered.

Much of Egypt’s economic policy has been frozen until an elected president with a popular mandate takes office. The presidential vote begins on Wednesday but is likely to extend into a run-off vote in mid-June.

Since a popular uprising unseated Egypt’s president in February 2011, the government has turned to the domestic market to finance a widening budget deficit, squeezing the lending ability of local banks.

One of the first decisions any new government will have to take is whether to go ahead with long-delayed talks with the International Monetary Fund for an emergency foreign currency loan that could relieve pressure on domestic interest rates.

“Nothing special in the market to be honest other than waiting for the election,” said a trader at a Cairo-based bank. “As it gets closer, players feel more uncomfortable bidding in the auction and, accordingly, yields have increased over the last two weeks.”

LOCKING IN YIELDS

A fixed-income analyst said at least some investors were locking their funds into longer periods to take advantage of the high rates.

The average yield on 357-day T-bills also rose at Thursday’s auction, but at a slower pace than the 182-day bills. The yield climbed to 15.882 percent, its highest since March 13, from 15.748 at the last issue on May 8. The bank sold 3.5 billion pounds, the same amount it had sought.

“The sentiment in the fixed-income market at the moment seems to be that if the elections go by smoothly, and external aid begins flowing, the current (high) yields will be long gone, at least in the short term,” Kamel said.

The Egyptian pound was bid at 6.046 to the U.S. dollar, its weakest closing price since January 2005.

Traders said the central bank has been keeping Egypt’s currency within a range of 6.030 to 6.047 to the dollar over the last few weeks, but now might be preparing to allow it to edge down.

“I think it is a managed move till now, as volume is quite little – only $140 million,” and much of this was corporate demand, the bank trader said.

“So maybe CBE is trying to move on the next level of gradual depreciation and to get out of range. But in general we are still within the range.”

Since the uprising, which chased away many dollar-toting tourists and foreign investors, the central bank has allowed the pound to fall by 3.8 percent against the dollar.

In equities, Egypt’s benchmark share index extended its losses for a fourth day on Thursday, falling 1.3 percent, also on election jitters.

“Investors are shying away from taking any critical decisions,” said Osama Mourad of Arab Finance Brokerage. “Some of the candidates have also recently been talking about imposing capital gains taxes, which has investors worried.”